Budget 2024-25: All The Great Stuff That Got Buried Under Excessive Tax Focus

Ever since Finance Minister Nirmala Sitharaman unveiled India's Union Budget for 2024-25, much of the initial discussion has centred on tax rationalisation/changes on various asset classes.

While an important part of the budget, the disproportionate focus shown on them belies the fact that for the larger national economy and populace, these changes may not be that material.

They impact the country's most vocal populace — and perhaps why it has seen so much significance.

However, looking at the budget from the structural macro and political economics lens is important to understand the government's rationale and budget aims fully.

With the era of coalition government again unto us — giving a non-zero possibility of early elections, this more grounded analysis gains higher importance.

The Structural Macro-Economic Strength Of Budget 2024

If we must pick up the single most important thing in any budget, it must be the fiscal deficit. In ordinary terms, the fiscal deficit is how much spending is more than the revenue of the government.

At a macroeconomic level, this represents the government's creation of money. Since it spends more than it gathers, the difference becomes the additional money that the government “prints” in the process and pushes to larger economy via spending.

Given that the fiscal deficit is directly about creating money, if done well, it can lead to expansion in the economy. If done badly, it can lead to rampant inflation, which we have seen in earlier eras of the Indian government and has been the case internationally since COVID-19.

Good fiscal control has been a hallmark of the Narendra Modi government since 2014, leading to strong inflation control. Even during the pandemic, when loose fiscal policy was common worldwide, the Modi government's approach was measured.

Post-pandemic tightening has been remarkable, reducing the fiscal deficit from 9.1 per cent to 5.6 per cent in FY24, with a projection of 4.9 per cent in FY25.

And this has given results. Even through the pandemic, inflation control was strong enough that we saw times when Indian inflation was lower than even the US — almost a miracle. The government's continuing seriousness on inflation control is also reflected by the budget's Rs 10,000 crore price stabilisation fund.

It must be pointed out that inflation is the worst form of taxation, directly taking away the value of money from everyone every year. Good inflation control aids everyone, but especially the low-income class with the least financial protection.

A consistent fiscal deficit performance is also perhaps one of the reasons why the Indian bond yield spreads are at historical lows. In a world filled with debt problems, India is rapidly increasing its creditworthiness.

The long-term benefits of this could be remarkable, including the proliferation of the Indian treasury in global investor portfolios and international trade.

The excellent fiscal discipline, despite opposition pressure, is the best structural strength of the current budget. Domestically, it gives for good inflation control. And internationally, it provides India with better-borrowing terms — a long way from the 1991 crisis.

The Political-Economics Of Budget 2024

Renowned economist Joseph Stiglitz argued that the very notion that one could separate economics from politics or a broader understanding of society illustrates a narrowness of perspective.

From Keynes to Hayek, economists have consistently highlighted the intertwined nature of politics and economics. Therefore, any budget analysis must consider these political-economic aspects.

From a political-economic perspective, the government has shown significant savviness in the budget. Finance Minister Sitharaman's mentions of Andhra and Bihar highlight the budget's dual nature as an economic and political document.

However, it is important to note that the speech referenced other states, including a special focus on the Purvodaya Scheme for eastern states. The budget also allocates funds for various states, ensuring that the development of key regions does not come at the expense of others.

But the budget has much beyond the coalition dharma on the political-economic front. The good news for a large section of the Indian population is that the Modi schemes will go on unabated.

The overall scheme expenditure in the 2024-25 budget is set at Rs 20.22 lakh crore, maintaining a steady 6 per cent year-over-year increase. This trend, consistent over recent years, reflects the government's commitment to welfare programmes.

The world's largest universal basic food programme, PM Anna Yojana, is set to continue for five more years. The PM Kisan Samman Nidhi maintains its allocation of Rs 60,000 crore.

The PM Awas Yojana has significantly increased rural (Rs 54,500 crore) and urban (Rs 30,171 crore) allocations. The government plans to build 3 crore additional rural houses and also address the housing needs of 1 crore urban poor and middle-class families.

This boost in housing schemes addresses a fundamental need across demographics. The Jal Jeevan Mission has been allocated Rs 70,163 crore in 2024-25.

Similar trends are observed in other Modi schemes, addressing various needs across population segments, and forming the backbone of the country's welfare system. The schemes are steadily augmenting the demographic dividend upon which India sits.

But the real miracle is that the continuing fiscal support for such a large chunk of the population across multiple fronts has been achieved lately without pushing inflation out of control.

Fiscal control is one part of the answer to it. The second part of the answer to doing it is creating space for production/generation along with welfare distribution.

The Second Leg Of Political Economics — Generation along With Distribution

It should be obvious that welfare schemes cannot be sustained on their own. Inevitably, they lead to inflation, which then erodes the welfare scheme itself, even landing the economy into a deep crisis.

Periodic inflation crisis has, therefore, been a mark of the Indian economy in earlier eras dominated by welfare alone to win elections. Inflation ruins this plan beyond two terms of government at the maximum.

The way out? Increase the pie along with distributing it. That is, the government must focus on production and generation to sustain welfare distribution. These production and generation create the space in which welfare can be done.

The Modi government repeatedly has shown this capability. In fact, people have argued about whether the Modi government is right-wing, left-wing, or centre.

The actual answer is neither of the three. It is left and right both simultaneously, using the “right” way to generate wealth and the “left” way to distribute it.

Keeping in this view, the 2024-25 budget showcases a multi-faceted approach to wealth generation, targeting various sectors and demographics of the Indian economy.

It emphasises skill development and entrepreneurship to create a productive, innovative workforce.

Whether it is the new ITI Upgradation Scheme (Rs 1,000 crore) to enhance the quality of technical education or the complementary Skill India Programme (Rs 2,686 crore) and PM Schools for Rising India initiative (Rs 6,050 crore; 100 per cent+ increase), they reflect a commitment to creating a skilled labour force capable of meeting the demands of a modern economy.

Additionally, a new internship programme with a budget of Rs 2,000 crore has been introduced, potentially bridging the gap between education and employment, and providing young individuals with valuable work experience.

On the job front, the new employment generation scheme (Rs 10,000 crore) represents a major push towards job creation, crucial for wealth generation at both individual and national levels.

Additionally, the raising and accelerating MSME performance scheme has received an increased allocation of Rs 1,170 crore to enhance the sector's competitiveness and efficiency.

Traditional artisans and craftspeople also receive significant attention through the PM Vishwakarma scheme, which has seen its allocation rise from Rs 990 crore to Rs 4,824 crore. This initiative aims to preserve traditional skills while modernising practices to boost income generation.

Larger industries benefit from the significant increase in allocations to production linked incentive (PLI) schemes across electronics, automobiles, pharmaceuticals, and food processing sectors.

These schemes aim to boost domestic manufacturing, increase exports, and integrate India into global supply chains, contributing to overall economic growth. The budget also allocates Rs 2,228 crore for nuclear power, Rs 10,000 crore for solar power, and Rs 6,250 crores for rooftop solar.

These investments will boost production capacity with a stable, clean energy supply, supporting industrial growth and attracting energy-intensive industries, thus enhancing economic output and competitiveness.

A standout feature of the budget is the substantial increase in capital expenditure to Rs 11,11,111 crore, a 16.9 per cent rise from the previous year. This allocation, representing 3.4 per cent of the estimated gross domestic product (GDP), is a strategic investment in India's future prosperity.

The government plans to boost economic growth by investing in long-term assets and infrastructure projects. Because of its labour and capital-intensive nature — along with improving connectivity and reducing logistical bottlenecks — infrastructure segment has the rare distinction of being a sector that boosts consumptions and investments both.

It will help create jobs, increase productivity, and make it easier to do business. It will also help develop underserved areas, leading to more inclusive wealth creation.

So How Good Is The Budget Really?

A budget with low fiscal deficits while simultaneously giving a good push to welfare schemes and economic production provides a great 'right+left' act.

It promises to deliver an economy that is growing, distributing, and safe from inflation — a tough act to combine. But the Prime Minister and Finance Minister have repeatedly shown they can deliver on this wholesome combination.

Welfare schemes delivered without inflation are as good politically as they can get. While challenges undoubtedly remain, the 2024-25 budget reflects a mature economic vision that seeks to harness India's demographic dividend and vast potential while maintaining overall stability.